Focus: Agriculture and coal

I added KOL, ARLP and PCX yesterday and today. Both of ARLP and PCX are at record high.

The focus right now are two sectors:

Agriculture:

1. Agriculture commodities and companies. I think the flood in corn belt states will push corn and soybean to new highs in the months to come. If we have very hot summer, the yield will be lower, due to the late planting and the wet conditions produce shallow corps that are not strong. It's almost like a perfect storm, we have global demand issues, record low inventory in corn, and now the flood. Corn can hit as high as $9, some analysts already projected that.
2. Check the wheat's parabolic run early this year, corn is nothing close to that. So it's very likely we'll have higher corn, soybean and wheat later this year.
3. How to play Ag:
4. DBA and DAG. These two are based on corn, soybean, wheat and sugar. Of course, DAG is the double long of DBA.
5. MOO. This is the ETF for agriculture business, including fertilizers, seeds, and other agriculture business. I think over time, it should do better than DBA.
6. POT, MOS, AGU are the individual stocks, I like them since the fertilizer price is in the middle of a long term upward move, some predicted potash will hit $1000 a ton from $650 right now, and remember, in early 2007, it's less than $200.

Coal: This maybe the best way to play higher oil price.

1. Some analysts predicted coal price will double in the next year or 2010. And comparing to oil, coal is still very cheap.
2. Over 50% of US electricity is generated by coal.
3. Clean coal energy is being researched.
4. US has the largest coal reserve in the world, and China is changing from a coal exporter to coal importer. I think China's demand alone will drive coal price much higher.
5. KOL is the ETF for coal companies.
6. ARLP, PCX, ACI, ANR and FCL are some individual coal companies. They are all near record highs. But the lessons I learned, record high indicate the sector is strong, and I should buy strong stocks.

If US and global economy is strong enough to avoid a recession, I think inflation and energy cost will be the major theme in the next few years.

Focus on strong sectors and the strong stocks. I will do that from now on. Avoid sticking to old thinking, like gold. I still have GDX down the water, and I'll use it to balance my portfolio, but will reduce that when I have the chance.

Lesson learned

1. This morning I was furious about the losses in LEH since I bought it at 29 on Monday, and I sold LEH at 25.3, and then it bounced back to 26.5, before it closed at 23.75.
2. And I added AGU at 99.50, a new record, it closed at 100.13.
3. So the result is in: a new low usually will lead to new record low, until it turns.
4. A new high will lead to a new high, until it turns.
5. From my perspective, I will never buy a new record low, until it turns.
6. I will keep buying new record high, until it turns.
7. Lessons learned.
8. My DBA and DAG are doing great today, MOO and KOL, not so good. MOS, POT and AGU are all doing great today.
9. Next: monitor these and take profit when I think it turns. Until then, keep them.
10. I think DBA can easily break the record high of 43.5 set early this year, the rain in corn belt will push up corn, soybean. In fact, corn, soybean and wheat all had limit up today, that's a good sign that it will continue to go up tomorrow.
    
11. Trading for over 5 years, now I think I finally agree with the "buy new highs" and "sell new lows" rule. I always did the opposite before.
12. I think agriculture commodities will be the best vehicle to fight inflation in the years to come, and fertilizer companies (POT,MOS and AGU) are the best stock group to own for the next few years.
13. The risk is government intervention, but I think U.S. government will more likely to intervene oil price than corn, since U.S. benefits from agriculture inflation (U.S. is the biggest exporter of corn and soybean in the world, for example), while on the other hand, U.S. is the biggest importer of oil.
14. Coal should be a good buy too. I have KOL in place and will add more when it pulls back.
    

Cut PAL and LEH, Add AGU

Yesterday, I added LEH and KOL again, think it's a great buy, specially in LEH. I also added AGU from the sales of POT and MOO.

1. Today LEH hit a new low, along with general markets. I sold it at the low of the day, talking about "good" timing!
2. And I bought AGU from the LEH money. AGU hit a new record high today.
3. Never try to pick up a great stock when it's down big, like LEH. At least wait three more days!
4. On the other hand, never wait to add a strong stock, like MOS breaks out recently, and I wait and wait, now it's way above my target.
   
5. But I decided to add AGU and buy it at record high today, to test if a new record high is better than new record low. I think the answer to this test is clear, regardless this trade is successful or not.
6. New record high is a good thing. Buy.
7. New record low is a bad thing. Sell.
   

Added KOL and LEH

Today, I added LEH and KOL.

1. I think LEH may be over punished on the down side. I added a small position here to monitor it. May add more if it continues to dive.
2. I added KOL. I think from growth perspective, it has more legs than oil companies, coal is cheaper comparing to oil, and it still the number one commodity used to generate electricity in US and China.
3. Looks like I sold POT too early last Friday, good thing I still have the most POT left. I think POT and MOS are still the strong stocks to be.

Reduce positions

Today I sold all DBC and a small portion of POT. I bought a very small position in KOL (Coal related ETF).

1. Recently, my DBC position turned out to be the best performer, too bad it's small. Since oil run up $17 in two days, I took profit in DBC and raise cash.
2. Also sold some POT for good profit, I bought them at 180s and 190s. Raise cash.
3. Bought a small KOL to monitor this sector. Comparing to oil, coal is cheap, so I'll use this ETF to monitor the sector. May add more in the future.
4. DBA and DAG are almost back to the price I paid, a few more days like this, I'll be in black.

Changes

I think agriculture is the next big thing, and it still has a few years left in its run. However, recent price action on DBA is not as good as I hoped, and my positions in POT, MOS did better than I hoped. Therefore, recently (mainly today), I reduced DBA and DAG, and added MOO and POT. Now MOO is my new number 1 position. MOO has following main holdings: POT, MOS, DE, ADM and MON. I think all these fertilizer companies, agriculture equipments and service companies will do better than DBA in the coming years if food crisis is to continue, even just keep the price as its current level, these companies will do better.
Just early this year, potash price imported to China is tripled in less than 15 months. I think POT, which controls 22% of world potash reserve, will have great earning power moving forward. So I'll play and trade according to these new information. Even technicals indicate POT may break to new highs soon.
It's easy for POT to double in a year or two, but it's difficult for DBA, even DAG to double(2x DBA). Considering the public outcry on food prices. So I'll keep this as future guidance, usually, companies are better leveraged than the underline commodities.
MOO:
MOO tracks the DAX Agribusiness Index. 0.65% expense ratio. MOO holds 40 companies that trade on 13 exchanges worldwide. Companies must be worth at least $150 million to be included in the ETF, reports Index Universe Staff. The U.S. makes up the most of MOO at 55% followed by Canada at 9.3%. Holdings in the ETF include agriculture chemicals at 34%, agriproduct operations at 33.5%, agriculture equipment at 24.3%, livestock operations at 5.6% and ethanol/biodiesel at 2.3%.
Top 10 holdings of MOO as of 3/31/2008: %

Syngenta Ag		8.2
Monsanto Co.		7.91
Potash Corp. Of Saskatchewan Inc.		7.7
Deere & Co.		7.69
The Mosaic Co.		7.45
Wilmar Intl Ltd.		5.25
Komatsu Ltd.		4.94
IOI Corp. BHD		4.79
Yara International ASA		4.6
CNH Global NV		4.49

Positions and changes

1. I sold YHOO last Thursday, ahead of the rise on Friday, and I was kicking myself on Friday, with YHOO up more than 6%. And today with YHOO down 16% now, I feel lucky!
2. I added POT and MOS on Thursday and Friday. I think long term, these companies are better leveraged than DBA; and similarly, GDX is better leveraged than GLD. But with oil cost high, it will put pressure on gold companies. So my focus will be on agriculture and fertilizer companies.
3. My main position is DBA, followed by POT and DAG. I also got enough GDX.
4. I will add these on weakness, and take profit on sharp rise.